Saturday, January 5, 2013

I often reference the fact that in the very same book where Samuelson makes his dire predictions Alvin Hansen (the guy that's known as the "American Keynes"!) makes a positive prediction for the post-war period, with no fears about what the decline in government spending will do. I checked the book out last year, but I don't own it so I can't cite it at will. But anyone that does cite Samuelson clearly has the wherewithall to flip a few pages and get an equally authoritative Keynesian view (probably more authoritative back in the 1940s).

“The fact is that many people dread to think of what is coming. Businessmen, wage earners, white-collar employees, professional people, farmers—all alike expect and fear a postwar collapse: demobilization of armies, shutdowns in defense industries, unemployment, deflation, bankruptcy, hard times. Some are hoping for a postwar boom. We got that after the First World War. Not improbably we may get it again. If the war lasts several years, we may have at the end of the war sufficient accumulated shortages in residential housing, in durable consumers’ good such as automobiles, and in the plant and equipment required to supply peacetime consumption demands, to give us a vigorous private investment boom. Indeed, we need to be on the alert to prevent a possible postwar inflation. If in fact we do experience a strong postwar boom, there is, however, the gravest danger that it will lull us to sleep. Sooner or later such a boom will end in a depression unless we are prepared. If appropriate action is taken, there is no necessity for a postwar collapse.” (Hansen 1943: 12–13)."

And of course, there was a boom in private demand after the war, just as Hansen expected, and thanks to the success of Keynesianism among economists stabilization was an important policy concern in post-war America that economists were vigilant in thinking about, and we really didn't have major recessionary problems for quite some time.

And if "the American Keynes's" view of things isn't sufficient to stop people from spreading this misinformation, we can go to Keynes himself (also discussed by LK and also mentioned by myself here in the past). LK writes:

In 1943, Keynes was giving a lecture at the Federal Reserve and was asked by Abba Lerner about the possible economic problems of the post-war period. Keynes also predicted a post war boom:

“Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem.” (Colander and Landreth 1996: 202).

What's more, Samuelson was aware that his pessimism was the minority view. He notes that in the chapter that Henderson, Woods, Roberts, and many others have made sure to quote from (they just don't quote that part). But what's even more remarkable is that Samuelson was so out of step with his fellow Keynesian economists that Harris - the editor of the volume - has an editor's note at the beginning drawing attention to the fact that this is just Samuelson's opinion, it's more pessimistic than most, etc. etc. Again, I don't have the book on me so if someone does and wants to share the language of the editor's note in the comments that would be great. If I recall, Hansen's positive chapter (that you never hear quoted) does not have the same sort of disclaimer from the editor.

The people who keep quoting Samuelson need to be able to explain why we should take Samuelson's pessimism as the final word of Keynesians in the 1940s when two giants like Keynes and Hansen held the alternative position before there is any more talk about this disproving the Keynesians.

If you think that Keynesians think you have to have lots of government spending to have a fully employed economy, you are confused.

You need demand, because although in the long run the economy is most definitely supply constrained, in the short run it is demand constrained.

While they're not without value, I am definitely not in this "clear bets about predictions are the way to express our views on the future" gang. I think it's good when people couch and exhibit uncertainty. But amidst all that certainty, what comes out clear as day is that Hansen is not expecting a post-war recession.

I'm not sure what else there is to it other than that.

re: "Although I was interested to find Keynesian predictions that countered all I had seen so far, I cannot see any here."

By "all I had seen so far", I assume you mean "the views of one man that keep getting repeated", right?

(1) As it happens, I have substantial knowledge of 5 languages, including advanced grammar.

(2) ""May" or "Might" express possibility. In standard English books, that's 50/50, along with "could.""

Yes, they express possibilities or probabilities. But they do not necessarily commit the user of those words to any strict probability score.

(3) One can make a prediction without 100% certainty. Indeed, since so many future events cannot be predicted with 100% certainty, it is obvious that some possibilities (i.e., sentences with certain model verbs) merge into predictions. We see this in weather forecasting on the news all the time.

It perfectly possible for an English speaker - even in formal writing - to say "I think it may rain tomorrow" to mean "it will probably rain tomorrow", both being predictions, with less than 100% certainty.

Thus even possibilities expressed with words like "may" can function as predictions.

(3) How someone obtained the information is irrelevant. ....

No, it is not. And if you had bothered to read the wiki you would see that the statement "How someone obtained the information is irrelevant" is false in relation to hearsay.

Bear Nichols: "Dude, I speak four languages. I have taught Russian and English. Your grammar is simply wrong. "May" or "Might" express possibility. In standard English books, that's 50/50, along with "could."

Dude, I speak probability, and possibility, as well. Possibility does not mean 50/50. You may be literate, but you are innumerate.

Why would linguistic accomplishment necessarily correlate with any other kind of knowledge or reasoning? It seems just as probable that study of language would "crowd out" studies of other subjects!

"predictions are tough, particularly about the future"

Well, yeah. And let's talk about why. Hansen was venturing a guess about how people would choose to act. He was making certain assumptions about the choices the Axis and Allies would make, that the president of the US would make, that congressmen would make, about how labor leaders and the membership would act, how captains of industry would act, how discharged servicemen would act. All of these people were free agents, not machines or animals. I find it bemusing that the same people who think we can deduce timeless principles from axioms about "human action" seem to pretend that humans' economic doings operate according to strict and inviolable laws.

This is not "hearsay". Why don't you carefully read the definition of hearsay:

http://en.wikipedia.org/wiki/Hearsay

The statement above is the personal testimony of a direct witness to Keynes's statement, given formally in an interview for a book on economics.

It's interesting how you take someone's CLAIM as to what Keynes said, and believe it is true, because it paints Keynes in a light that is positive and comforting. You chastise Bear Nichols for daring to bring up the fact that it is a second hand quote.

And yet, when someone claims that Keynes recanted on his deathbed, you approach that second hand quote with skepticism, and you say "We don't know for certain that he even said that" (paraphrased), because that quote is in your mind negative and discomforting.

Double standard.

Second hand hearsay quotes are fine when they reinforce your own obvious bias.

"But what's even more remarkable is that Samuelson was so out of step with his fellow Keynesian economists that Harris - the editor of the volume - has an editor's note at the beginning drawing attention to the fact that this is just Samuelson's opinion, it's more pessimistic than most, etc. etc. "

Daniel,

There is this note by the editor within Samuelson's article:

* The reader should compare this view of future private demand (as wellas those given by the other contributors in Part I) with the more optimisticestimates by Dr. Bissell.—Editor

Of course, all of our lives we've heard nothing else from Official Government Sources but that slashing the budget by over 2/3 from $92 billion in 1945, to $55 billion in 1946, $34 billion in 1947 and to $30 billion in 1948 was the surest way to prosperity. That's always been the Official Keynesian Narrative that every second grader learns in government school.

BTW, I'm perfectly cool with everyone quoting Mr. Prescient Lord Keynes to the effect that because of Social Security there would be a large reduction in private saving and so that there would be no postwar problem. I mean, who doesn't know that a large reduction in private saving is the true path to prosperity?

Daniel,After mentioning that I quote Samuelson, you write:"But anyone that does cite Samuelson clearly has the wherewithall to flip a few pages and get an equally authoritative Keynesian view (probably more authoritative back in the 1940s)."That's not true. I knew nothing about the Hansen piece. You seem to assume that I was reading the same book you were. I wasn't. I was reading Stiglitz's Collected Works of Samuelson. All that is in there is Samuelson's piece, not Hansen's.